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The Honolulu Advertiser
Posted on: Saturday, October 25, 2003

Gold is riding high as stocks, dollar sag

By Claudia Carpenter
Bloomberg News Service

Gold rose to its highest closing price in seven years in New York, recording its largest weekly gain in 20 months on speculation that declines in equities and a drop in the dollar against the euro will spur demand.

Gold climbed 4.6 percent this week, coinciding with a drop in U.S. stock prices. The stocks' decline extended a yearlong 25-percent rally in gold by making the metal more attractive to investors.

Prices for gold rose earlier on declines in the dollar against the euro that made the metal cheaper for European buyers.

"A weaker dollar and potentially weaker stock market should translate into more investor demand for gold," said Scott Morrison, who manages $6.5 million at SAM Capital LLC in New York and trades gold futures.

"It's going to be hard to make upside progress in the near term in the stock market, and that should be positive for gold."

Gold for December delivery rose $4.20, or 1.1 percent, to $389.20 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing for a most-active contract since September 1996. The gain for the week was the largest since February 2002.

Gold-mining shares also climbed yesterday. The Philadelphia Gold & Silver Index of 12 mining companies rose 1.84 to 97.90. Denver-based Newmont Mining Corp., the world's largest gold producer, rose 75 cents to $42.24, a six-year high.

"With mine supply likely declining and demand for gold being strong in an uncertain economic and geopolitical environment, the outlook is positive for gold," said Jamie Sokalsky, chief financial officer of Toronto-based Barrick Gold Corp., the world's third-biggest producer after South Africa's AngloGold Ltd.

It takes at least five years to develop a new gold mine, and gold industry exploration spending has fallen to about $1 billion a year from $4 billion a decade ago, Sokalsky said.

The Standard & Poor's 500 stock index fell 1 percent this week, the first weekly drop since late September, and the dollar recorded its eighth weekly decline in nine against the euro.

Declines for equities and the dollar contributed to a 25 percent rally in gold futures last year, the biggest annual gain since 1979. Prices are up 12 percent so far this year after touching a seven-year intraday high of $394.80 an ounce on Sept. 25.

Michael Guido, associate director of hedge-fund marketing at Barclays Capital Inc. in New York, said that if stocks worsen this year, gold could hit $400.